Notice: To view this week’s big picture outlook, click here.
What Happened: U.S. stock index futures auctioned within prior range, albeit slightly higher, as investors position themselves for key central bank meetings, later this week.
What Does It Mean: Last week, U.S. stock index futures recovered alongside (1) the enactment of a massive, $1.9 trillion coronavirus relief plan, (2) convergence in the 10-year Treasury rate and S&P 500 dividend yield, as well as (3) a material divergence in bond and equity market volatility.
Given the speed and distance of the S&P 500’s recovery since March 4, a swing low, the potential for balance, or two-sided trade is high as participants look for more information to base their next move on.
In support of this thesis are market liquidity metrics which suggested (1) buying pressure was leveling out and/or (2) buyers were absorbing resting liquidity (opportunistic selling or selling into strength), while speculative options activity was concentrated on the put-side.
SPY Option Activity 
IWM Market Liquidity 
QQQ Market Liquidity 
SPY Market Liquidity
What To Expect: Monday’s regular session (9:30 AM – 4:00 PM ET) will likely open inside of prior-range, suggesting a low potential for immediate directional opportunity.
During Friday’s trade, participants rallied the S&P 500 into the close, leaving an end-of-day spike.
More On Spikes: Spike’s mark the beginning of a break from value. Spikes higher (lower) are validated by trade at or above (below) the spike base (i.e., the origin of the spike).
For today, participants can trade from the following frameworks.
In the best case, the S&P 500 finds acceptance (i.e., resolves higher or sideways), above the $3,928.50 spike base. In the worst case, the S&P 500 finds acceptance (i.e., resolves lower or sideways) below the $3,928.50 spike base.
In case of higher prices, participants may look to auction as high as the $3,947.25 low-volume area (LVNode), which corresponds with a set of weak, overnight highs that likely will not last, and the $3,959.25 overnight, all-time rally high.
In case of lower prices, participants would look for responses at the $3,917.00 Virgin Point Of Control (VPOC) and $3,898.25 high-volume area (HVNode).
More On Overnight Rally Highs (Lows): Typically, there is a low historical probability associated with overnight rally-highs (lows) ending the upside (downside) discovery process. More On Volume Areas: A structurally sound market will build on past areas of high-volume. Should the market trend for long periods of time, it will lack sound structure (identified as a low-volume area which denotes directional conviction and ought to offer support on any test). If participants were to auction and find acceptance into areas of prior low-volume, then future discovery ought to be volatile and quick as participants look to areas of high-volume for favorable entry or exit. More On POCs: POCs (like HVNodes described above) are valuable as they denote areas where two-sided trade was most prevalent. Participants will respond to future tests of value as they offer favorable entry and exit.
Levels Of Interest: $3,928.50 spike base.
